Consumption slump kills off restaurants, coffee shops

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Consumption slump kills off restaurants, coffee shops

Published: 26 May. 2025, 13:25 Updated: 28 May. 2025, 13:02

Audio report: written by reporters, read by AI

Delivery riders are seen in front of a restaurant in downtown Seoul on May 25. [YONHAP]

Is the current economic slump worse than the pandemic? The number of decreasing cafes and restaurants in Korea say so.

Korea’s restaurant and self-employment sectors are reeling under the weight of a deepening domestic consumption slump as soaring costs, weak consumer demand and rising debt push thousands of small businesses to close.

One well-known Korean beef restaurant near Seoul City Hall, a popular spot for company dinners, recently halved its staff. While it was once difficult to get a reservation for a private room during dinner hours, things have changed significantly this year.

“Even those are now mostly for small groups of three or four, and we haven’t seen large company gatherings in a long time,” a staff member at the restaurant said. “As prices have gone up, it seems customers are feeling burdened.”

Another competing hanwoo (Korean beef) restaurant just 100 meters (109 yards) away closed down three months ago.

The domestic consumption slump is directly impacting the restaurant business. With falling consumer demand and rising costs, many restaurants and bars are shutting down.

The average number of Korean restaurants in operation in the first quarter of this year was 410,785, down by 484 from the same period last year, according to the National Tax Service’s statistics on the "Top 100 Lifestyle Industries.” Other food service businesses like pubs, Chinese restaurants and fast food outlets also declined.

The number of cafes fell by 743 on year to 95,337. This marked the first downturn since statistics began in 2018, when there were 45,203 cafes in the first quarter. Despite the pandemic, cafes continued growing thanks to Korea’s strong coffee culture and relatively low startup costs.

Apparel shops decreased by 2,982 to 82,685, and convenience stores, typically a top choice for self-employment, dropped by 455 to 53,101.

The main reason for these difficulties in the food service sector is the slump in consumer spending. The average revenue per small business was about 41.79 million won ($30,610), down 0.72 percent from the same period last year, according to Korea Credit Data's (KCD) First Quarter 2025 Small Business Trends report.

Among sectors, bars suffered the most with an 11.1 percent drop in sales, followed by bunsik (Korean street food) shops with a 7.7 percent drop, bakeries and dessert shops with a 4.9 percent drop, fast food with a 4.7 percent drop and cafes with a 3.2 percent drop. The prolonged high-interest, high-inflation environment has consumers tightening their purse strings.

A street in Seodaemun District, western Seoul is seen with vacant cafes and stores on Feb. 17. [YONHAP]

Production in the restaurant and bar sector fell 3.7 percent on year in the first quarter, according to the service industry production index that is used as an indirect indicator of service consumption. Overall service sector output rose 0.4 percent during the same period, highlighting a stark contrast.

While consumer spending is down, fixed costs for business owners remain high. In the food service sector, delivery app fees are a major burden.

Out of a 16,000 won order, for instance, 1,248 won went to a delivery app’s intermediary fee, 450 won to the payment services, 3,000 won for seller-paid delivery fees, 1,600 won in ad fees, 630 won in VAT and 1,000 won in discounts — leaving only 8,072 won for the owner, according to a Chinese restaurant owner who shared their delivery app earnings online.

This is before deducting costs like ingredients, labor and rent, meaning half the revenue is gone upfront. Many self-employed owners say they’re barely breaking even, if at all.

A visitor looks around coffee machines at a cafe and desert fair held in Coex Magok Le West in Gangseo District, western Seoul on May 8. [YONHAP]

Attempts to cut costs are limited due to rising ingredient prices. Last month, the processed food price index rose 4.1 percent on year — the highest increase since December 2023, when the index was at 4.2 percent. This was also the reason for the severe backlash from self-employed business groups over Democratic Party presidential candidate Lee Jae-myung’s controversial claim that “coffee costs 120 won.”

Meanwhile, debt pressure is growing. The KCD reported that the total outstanding debt of sole proprietors at the end of the first quarter was around 719 trillion won — up about 15 trillion won from 704 trillion won a year earlier.

With profits drying up, closures are inevitable. The number of applications for the government’s “one-stop business closure support” service in the first quarter came to 23,785 — up 64.2 percent on year.

Signs saying ″no cafes″ are seen at a vacant coffee shop in Jongno District, central Seoul on April 13. [YONHAP]

The Yellow Umbrella Mutual Aid Fund that supports small and medium-sized businesses (SMEs) paid out 607.2 billion won in closure benefits between January and April this year — the highest ever, and an 11.6 percent increase from the same period last year when 544.3 billion won was paid out, according to the Korea Federation of SMEs.

This is more than double the 263.5 billion won paid in the same period in 2020, the first year of the Covid-19 pandemic.

Considering structural issues like declining birthrates, an aging population and weakening consumption trends, it won’t be easy to find an exit for the self-employed.

The Bank of Korea estimates that due to aging, average household consumption will fall by 0.7 percent annually between 2020 and 2035.

Discount cafes selling low-price coffees are seen on a street in Jongno District, central Seoul, on Feb. 21. [YONHAP]

“In the long term, stimulating the economy or driving growth through domestic demand will become more difficult,” said Jung Kyu-chul, director of economic forecasting at the Korea Development Institute.

This means fiscal stimulus will be less effective than in the past and recovery will be slower than expected. In response, the Ministry of Economy and Finance has launched an in-depth analysis of how demographic changes are affecting consumption and domestic demand. The goal is to distinguish between structural and cyclical factors and craft appropriate countermeasures.

Amid all this, the Bank of Korea’s Monetary Policy Board is scheduled to meet on Thursday. Many expect it will lower the base interest rate from 2.75 percent to 2.5 percent to support domestic recovery.

“As data increasingly confirms the economy is weaker than expected, the Bank of Korea has little choice but to cut rates,” said Cho Young-moo, a researcher at LG Economic Research Institute.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY IM SOUNG-BIN, JANG WON-SEOK [[email protected]]